Journal Article

Asymmetric Information, Portfolio Managers, and Home Bias

Wioletta Dziuda and Jordi Mondria

in The Review of Financial Studies

Published on behalf of The Society for Financial Studies

Volume 25, issue 7, pages 2109-2154
Published in print July 2012 | ISSN: 0893-9454
Published online June 2012 | e-ISSN: 1465-7368 | DOI: http://dx.doi.org/10.1093/rfs/hhs063
Asymmetric Information, Portfolio Managers, and Home Bias

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  • Information, Knowledge, and Uncertainy
  • Economics
  • International Financial Markets

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We propose a model of delegated asset management that can explain the following empirical regularities in international markets: the presence of home bias, the lower proportion of mutual funds investing domestically, and the higher market value of mutual funds investing domestically. In the model, fund managers choose whether to specialize in domestic or foreign assets. Individual investors are uncertain about managers' abilities, and they are more informed about domestic markets. This makes domestic investments less risky and generates home bias. Home bias is magnified because higher-ability managers specialize in domestic assets, making them even more attractive to the investors.

Keywords: D82; G11; G15

Journal Article.  22635 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Economics ; International Financial Markets

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